Assume that expected inflation is based on the following: πᵉt = θπt₋₁.An increase in θ will cause

Question

Quizplus · Accepted Answer

The natural rate of unemployment is determined by real factors such as labor market structures and policies, not by the expected inflation rate or how it is formed (πᵉt = θπt₋₁). Therefore, changing θ, which affects how expectations of inflation are formed based on past inflation, does not directly impact the natural rate of unemployment.

Assume That Expected Inflation Is Based on the Following: πᵉT